WWB. CIRCULAR TO MGX SHAREHOLDERS relating to: the debt refinancing of MGX, a notice of general meeting; and a form of proxy.

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1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION ACTION REQUIRED 1. If you are in any doubt as to the action that you should take, you should consult your banker, stockbroker, attorney, accountant or other professional adviser immediately. 2. If you have disposed of some or all of your shares in MGX, then a copy of this circular, together with the attached form of proxy should be forwarded to the acquiror to whom, or the stockbroker or agent through whom, you disposed of your MGX shares. 3. Shareholders holding certificated MGX shares or who have already dematerialised their MGX shares and have elected own-name registration in a sub-register through a CSDP, who are unable to attend the general meeting but wish to be represented thereat should complete and return the attached form of proxy, in accordance with the instructions contained therein, to the office of the transfer secretaries, Computershare Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107). The form of proxy must be received by the transfer secretaries by no later than 09:00 on Thursday, 15 January 2004, or if the general meeting is adjourned or postponed, by not later than 48 hours prior to the time of the adjourned or postponed general meeting. 4. Shareholders who have already dematerialised their MGX shares through a CSDP or broker and who have not elected own name registration, and who wish to attend the general meeting, must instruct their CSDP or broker to issue them with the necessary authority to attend, or, if they do not wish to attend the general meeting and wish to vote by way of proxy, they may provide their CSDP or broker with their instructions in terms of the custody agreement entered into by them and their CSDP or broker. 5. MGX does not take responsibility and will not be held liable for any failure on the part of the CSDP or broker of a dematerialised shareholder to notify such shareholder of the general meeting or any business to be conducted thereat. MGX Holdings Limited (Incorporated in the Republic of South Africa) (Registration number 1983/012697/06) Share code: MGX ISIN: ZAE ( MGX or the Company ) CIRCULAR TO MGX SHAREHOLDERS relating to: the debt refinancing of MGX, and incorporating a notice of general meeting; and a form of proxy. H O L D I N G S L I M I T E D The directors, collectively and individually, accept full responsibility for the accuracy of the information given in this circular and certify that, to the best of their knowledge and belief, there are no facts, the omission of which would make any statement in this circular false or misleading and that they have made all reasonable enquiries to ascertain such facts and, if applicable, this circular contains all information required by law. Standard Corporate and Merchant Bank is acting for MGX and no one else in relation to the preparation of this circular and will not be responsible to anyone, other than MGX, in relation to the preparation of this circular. Merchant bank Debt adviser Attorneys WWB WEBBER WENTZEL BOWENS Independent adviser Reporting accountants and auditors Attorneys to the Capital Providers Deloitte & Touche Chartered Accountants (SA) Registered Accountants and Auditors Deneys Reitz Inc. 1984/003385/21 Date of issue: 17 December 2003

2 CORPORATE INFORMATION AND ADVISERS Registered address and company secretary Charl Du Plessis 22 Milkyway Avenue Linbro Business Park Linbro Park Sandton, 2146 (PO Box 1697, Bramley, 2018) Transfer secretaries Computershare Limited Ground Floor 70 Marshall Street Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) Merchant bank and sponsor Standard Corporate and Merchant Bank (A division of The Standard Bank of South Africa Limited) 5th Floor 3 Simmonds Street Johannesburg, 2001 (PO Box 61344, Marshalltown, 2107) Reporting accountants and auditors Deloitte & Touche Chartered Accountants (SA) The Woodlands Woodlands Drive Woodmead, Sandton, 2146 (Private Bag X6, Gallo Manor, Sandton, 2052) Debt adviser Credit Management Solutions (Proprietary) Limited 9th Floor Rennie House 19 Ameshoff Street Braamfontein, 2001 (Private Bag X6, Norwood, 2117) Independent adviser Deloitte & Touche Corporate Finance The Woodlands Woodlands Drive Woodmead, Sandton, 2146 (Private Bag X6, Gallo Manor, Sandton, 2052) Attorneys to MGX Webber Wentzel Bowens 10 Fricker Road Illovo Boulevard Johannesburg, 2196 (PO Box 61771, Marshalltown, 2107) Attorneys to the Capital Providers Deneys Reitz 82 Maude Street Sandton 2196 (PO Box , Sandton, 2146) Date of incorporation of MGX 18 November 1983 Place of incorporation of MGX Pretoria

3 TABLE OF CONTENTS Page Corporate information and advisers Inside front cover Important dates and times 2 Definitions 3 Circular to shareholders 1. Introduction 8 2. Rationale for the debt refinancing and the scheme 8 3. Important details of the debt refinancing and the scheme 9 4. Important terms and conditions of the debt refinancing Important terms and conditions of the scheme, the MGX notes and the MGX B facility Financial effects Information on MGX Information relating to directors Related party transaction Settlement with Cycad Opinions and recommendations Experts consents Expenses Material changes Directors responsibility statement Suspension of the MGX shares and working capital statement Termination of JSE Listing and name change Documents available for inspection General meeting 21 Annexure 1 Report of the independent reporting accountants on the unaudited pro forma financial information relating to the debt refinancing and the scheme 22 Annexure 2 Unaudited pro forma consolidated income statement of MGX 24 Annexure 3 Historical financial information of MGX 26 Annexure 4 Letter from the independent adviser to the board regarding the debt refinancing 60 Annexure 5 Terms and conditions of the MGX notes 64 Notice of general meeting Form of proxy (pink) Attached Attached 1

4 IMPORTANT DATES AND TIMES 2004 Last day to lodge the form of proxy for the general meeting, by 09:00, on General meeting at 09:00, 22 Milkyway Avenue, Linbro Business Park, Linbro Park, Sandton, on Results of the general meeting published on SENS, on Results of the general meeting published in the press, on Thursday, 15 January Monday, 19 January Monday, 19 January Tuesday, 20 January Notes: 1. These dates and times are subject to amendment. Any such amendment will be published on SENS and in the press. 2. If the date of the general meeting is adjourned or postponed, forms of proxy must be received by the transfer secretaries by not later than 48 hours prior to the time of the adjourned or postponed general meeting. 2

5 DEFINITIONS Throughout this circular and the attachments hereto, unless otherwise indicated, the words in the first column have the meanings stated opposite them in the second column, words in the singular include the plural and vice versa, words importing natural persons include corporations and other juristic entities and any reference to one gender includes the other genders: the board business day the Capital Providers CCMA certificated shareholders this circular or the circular the common terms agreement the Companies Act the conditions precedent to the debt refinancing the Court CSDP CSX the board of directors of MGX; any day other than a Saturday, Sunday or official public holiday in South Africa; Citibank, N.A., South Africa Branch, Standard Corporate Merchant Bank (a division of The Standard Bank of South Africa Limited), Momentum Group Limited, Nedbank Limited, Investec Bank Limited, Capital Africa Limited, the Trustees for the Time Being of the South Africa Private Equity Trust III, Drive Control Services (Proprietary) Limited and Eurevest; Commission for Conciliation, Mediation and Arbitration; shareholders who hold MGX shares in certificated form; this circular, dated 15 December 2003, incorporating a notice of general meeting of shareholders and a form of proxy for use by certificated shareholders and dematerialised shareholders who have elected own name registration in the sub-register through a CSDP or broker; the common terms agreement between MGX and the Capital Providers, the original guarantors and the Guarantor signed on 20 November 2003; the Companies Act, 1973 (Act 61 of 1973), as amended; the conditions precedent to the debt refinancing as set out in paragraph 4.3 of this circular; the High Court of South Africa (Witwatersrand Local Division); Central Securities Depository Participant; CSX Customer Services (Proprietary) Limited (Registration number 1998/023995/07), a private company incorporated in South Africa; Cycad Cycad Financial Holdings Limited (Registration number 1998/ /06), a public company incorporated in South Africa and whose ordinary shares are listed on the JSE; the debt refinancing the debt refinancing agreements DBS the refinancing of the existing debt in MGX into the Metrofile facilities and the MGX B facility, the term and conditions of which are more fully set out in this circular; the common terms agreement and the facility agreements signed by MGX, the Capital Providers and the original guarantors; Dion Business Systems (Proprietary) Limited (Registration number 1970/004142/07), a private company incorporated in South Africa; 3

6 dematerialised shareholders Didata UK shareholders who hold MGX shares in dematerialised form through a CSDP or broker and shareholders who hold MGX shares in dematerialised form through a CSDP and who have elected own name registration in the sub-register; Didata (UK) Limited (Registration number ), a private limited company registered in accordance with the laws of England and Wales; Digital Initiatives Digital Initiatives (Proprietary) Limited (Registration number 2002/003921/07), a private company incorporated in South Africa; the directors the disposals Document and Data Management DOSW EC-Hold EPS Exsol Eureka the directors of MGX whose names are set out on page 8 of this circular; the sale of certain operating subsidiaries and commercial properties, namely, of the businesses as separate going concerns of MGX Enterprise Solutions (Proprietary) Limited, MGX Business Continuity Solutions (Proprietary) Limited and MGX Business Continuity Solutions (Cape) (Proprietary) Limited, and the shares and claims in respect of MGX s 50% interest in Drive Control Holdings (Proprietary) Limited, MGX 100% in MGX Storage Solutions (Proprietary) Limited, MGX s 95% interest in Software Futures, MGX s 79% interest in Didata UK (pending), MGX s 100% interest in DBS (Proprietary) Limited, MGX s 100% interest in MGX Property Faerie Glen (Proprietary) Limited, MGX s 100% in entechnologies Corporation (USA) and MGX s 100% interest in MGX Property (pending); Document and Data Management (Africa) (Proprietary) Limited (Registration number 1986/003229/07), a private company incorporated in South Africa; Department of Social Welfare of the Provincial Government of Kwa-Zulu Natal; EC-Hold Limited (Registration number 1998/020093/06), a public company incorporated in South Africa and whose issued ordinary shares are listed on the JSE; earnings per share; Exsol Solutions Systems (Proprietary) Limited (Registration number 2001/015556/07), a private company incorporated in South Africa; Eureka Industrial Limited (Registration number 1938/010958/06), a public company incorporated in South Africa; Eurevest Eurevest Leasing (Proprietary) Limited (Registration number 1978/000001/07), a private company incorporated in South Africa; the facilities the facility agreements collectively, the Metrofile facilities and the MGX B facility; the agreements relating to the facilities, entered into between MGX and the Capital Providers; the Guarantor Micawber 305; the general meeting the general meeting of MGX shareholders to be held at 22 Milkyway Avenue, Linbro Business Park, Linbro Park, Sandton, at 09:00, on 19 January 2004, including any adjournment or postponement thereof, to consider, and, if deemed appropriate, to approve the resolutions; 4

7 HEPS JSE last practicable date Mail Processing Systems headline EPS; JSE Securities Exchange South Africa; 9 December 2003, being the last practicable date for completion of this circular; Mail Processing Systems (Proprietary) Limited (Registration number 1986/000155/07), a private company incorporated in South Africa; Main Street Main Street 152 (Proprietary) Limited, (Registration number 2003/016054/07), a private company incorporated in South Africa; Metrofile the Metrofile A facility the Metrofile B facility the Metrofile B1 facility the Metrofile C facility Metrofile (Proprietary) Limited (Registration number 1996/008024/07), a private company incorporated in South Africa; the credit facility granted and made available to Main Street of approximately R106 million in interest-bearing senior term debt; the redeemable convertible interest-bearing loan granted and made available to Main Street of approximately R112 million; the redeemable convertible interest-bearing loan granted and made available to Main Street of approximately R20 million; the redeemable convertible interest-bearing loan granted and made available to Main Street of approximately R77 million; Metrofile Cape Metrofile Cape (Proprietary) Limited (Registration number 1982/002659/07), a private company incorporated in South Africa; the Metrofile disposal the Metrofile Division the Metrofile facilities the disposal of the assets and liabilities of the Metrofile Division by MGX and the Metrofile Division to Main Street for the purchase consideration in terms of section 228 of the Companies Act; the subsidiaries of MGX involved in the document and records management division, including Metrofile, MGX Outsourcing, Metrofile Natal, Metrofile Cape, MGX Customer Services, Mail Processing Systems, Document and Data Management, The Paper Bank Marketing Company, Exsol and CSX; collectively, the Metrofile A facility, the Working Capital Facility, the Metrofile B facility, the Metrofile B1 facility and the Metrofile C facility; Metrofile Natal Metrofile Natal (Proprietary) Limited (Registration number 1989/002628/07), a private company incorporated in South Africa; MGX or the Company the MGX B facility the MGX Customer Services the MGX group MGX Holdings Limited (Registration number 1983/ /06), a public company incorporated in South Africa and whose issued ordinary shares are listed on the JSE; the redeemable convertible interest-bearing loan granted and made available to MGX of R20 million; MGX Customer Services (Proprietary) Limited (Registration number 1998/023995/07), a private company incorporated in South Africa; the group of companies comprising MGX and its subsidiaries; 5

8 MGX Outsourcing MGX Outsourcing (Proprietary) Limited (Registration number 1986/003229/07), a private company incorporated in South Africa; MGX Property MGX Property (Proprietary) Limited (Registration number 1999/006664/07), a private company incorporated in South Africa; the MGX notes the redeemable convertible interest-bearing notes to be issued to the scheme creditors in terms of the scheme as settlement of the claims that the scheme creditors may have against MGX, the terms and conditions of which are set out in Annexure 5; Micawber 305 Micawber 305 (Proprietary) Limited (Registration number 2002/015866/07), a private company incorporated in South Africa; Motswedi nacq NAV the original guarantors the prime rate the purchase consideration the resolutions the scheme the scheme creditors the security SENS shares or MGX shares shareholders or MGX shareholders Motswedi Technology Group (Proprietary) Limited (Registration number 1996/000064/07), a private company incorporated in South Africa; nominal annual compounded quarterly; net asset value; MGX Management Services (Proprietary) Limited, Archive Rental Systems (Proprietary) Limited, Record Storage & Management (Cape) (Proprietary) Limited, Record Storage & Management (North) (Proprietary) Limited, Digital and Paper Properties (Proprietary) Limited, Etsu Properties (Proprietary) Limited, Metrofile Properties (Proprietary) Limited and Record Storage & Management (Natal) (Proprietary) Limited; the publicly quoted annual prime rate of interest levied from time to time, nominal annual compounded monthly in arrears and expressed as a rate per annum, at which The Standard Bank of South Africa Limited lends on unsecured overdraft to its most favoured corporate customers (a certificate from any manager of that bank, whose appointment or authority need not be proved, as to the prime rate at any time and the usual way at which it is calculated and compounded at such time shall, in the absence of clerical or manifest error, be final and binding on the parties); R305 million to be paid by Main Street to the Metrofile Division in terms of the Metrofile disposal; the resolutions reflected in the notice of general meeting attached to this circular; the scheme of arrangement proposed by MGX between MGX and the scheme creditors, in terms of section 311 of the Companies Act; the creditors of MGX who, have claims against the Company, whether liquidated or unliquidated, actual or contingent; the guarantees issued by the Guarantor in favour of Capital Providers; the Securities Exchange News Service of the JSE; MGX ordinary shares with a par value of cents each in the issued share capital of MGX; registered holders of MGX shares; 6

9 Stuttaford Archive Services South Africa the SRP STRATE Sun Sun Microsystems Sun Microsystems Schweitz The Paper Bank Marketing Company TNAV transfer secretaries Ukusa Technologies the Working Capital Facility Stuttaford Archive Services (Proprietary) Limited (Registration number 1990/002865/07), a private company incorporated in South Africa; the Republic of South Africa; the Securities Regulation Panel, established in terms of section 440 (B) of the Companies Act; Strate Limited, (Registration number 1998/22242/06), a public company incorporated in South Africa and the electronic transaction system of the JSE; collectively, Sun Microsystems and Sun Microsystems Schweitz; Sun Microsystems (South Africa) (Proprietary) Limited, (Registration number 1996/000585/07), a private company incorporated in South Africa; Sun Microsystems Schweitz AG, a public company incorporated in Germany; The Paper Bank Marketing Company (Proprietary) Limited (Registration number 1994/010260/07), a private company incorporated in South Africa; tangible NAV; Computershare Limited (Registration number 2000/006082/06), a public company incorporated in South Africa and the transfer secretaries of MGX; Ukusa Technologies (Proprietary) Limited, (Registration Number 1998/024812/07), a private company incorporated in South Africa; and the short-term interest-bearing working capital facility granted and made available to Metrofile Division of R10 million. 7

10 H O L D I N G S L I M I T E D MGX Holdings Limited (Incorporated in the Republic of South Africa) (Registration number 1983/ /06) Share code: MGX ISIN: ZAE Directors Christopher Stefan Seabrooke* (Non-executive chairman) Anthony Charles Ball* Danisa Eileen Baloyi* Eduardo Gutierrez-Garcia** Stephen Roy Midlane Norman John Webster *Non-executive **Alternate to Anthony Charles Ball CIRCULAR TO SHAREHOLDERS 1. INTRODUCTION MGX shareholders are advised that MGX, the Capital Providers and the original guarantors have entered into the debt refinancing agreements, subject to the conditions precedent to the debt refinancing, in terms of which the Capital Providers have agreed to refinance the interest-bearing debt of MGX. In addition, the board has proposed the scheme, in terms of which the scheme creditors will receive the MGX notes in settlement of their claims against MGX. The purpose of this circular is to convene the general meeting and to provide shareholders with information relating the debt refinancing, the important details of the scheme and full details of the MGX notes, to enable shareholders to consider and, if deemed fit, approve the resolutions. 2. RATIONALE FOR THE DEBT REFINANCING AND THE SCHEME In December 2002, MGX embarked on a recovery plan, with the support of the Capital Providers, in terms of which the Company decided to: dispose of certain operating subsidiaries and commercial properties and use the proceeds of these disposals to reduce the debt of the company; refinance the interest-bearing debt of the Company to a position which could be sustained by the remaining operations in the MGX group; create a structure for the capitalisation of the remaining debt of the Company, to the extent that the debt is not repaid over a five-year period, thereby avoiding an immediate dilution to MGX shareholders and creating the opportunity for MGX to repay the debt; and create a smaller group which could be rebuilt into a profitable business after the refinancing of the Company s interest-bearing debt. 8

11 The total purchase consideration received by MGX for the disposals has been used by MGX to reduce its debt with the Capital Providers and other non-trade creditors from approximately R600 million to approximately R410 million. After the disposals, the remaining operating business in the MGX group will be the Metrofile Division, which is involved in document and records management. 3. IMPORTANT DETAILS OF THE DEBT REFINANCING AND THE SCHEME The debt of approximately R410 million, remaining after the disposals, will be refinanced as follows: MGX and the Metrofile Division will dispose of the assets and liabilities of the Metrofile Division, as a going concern, to Main Street, a wholly owned subsidiary of MGX and a special purpose vehicle created to facilitate the debt refinancing, in terms of section 228 of the Companies Act for a consideration of R305 million; Main Street will raise R305 million of interest-bearing debt from certain of the Capital Providers on in the following basis: the Metrofile A facility (approximately R106 million); the Working Capital Facility (approximately R10 million); the Metrofile B facility (approximately R112 million); and the Metrofile C facility (approximately R77 million); Main Street will assume an additional redeemable convertible interest-bearing loan of R20 million in the form of the Metrofile B1 facility, being debt in a foreign subsidiary of MGX; the Metrofile Division will pay an amount of R305 million to MGX in the form of a dividend and the repayment of inter-company loans and the Metrofile Division will be voluntarily wound-up by MGX in terms of sections 349 and 350 of the Companies Act; the Metrofile disposal will take place under the intra-group provisions of the South African Income Tax Act, 58 of 1962, as amended; MGX will settle R305 million of its domestic interest-bearing debt with the funds received from the Metrofile Division; and within MGX: creditors will have their claims compromised in terms of the scheme and will receive the MGX notes; and other secured creditors, with claims to the value of approximately R20 million against MGX, will convert their claims into the MGX B facility. Security for the Metrofile facilities, the MGX B facility and the MGX notes, will be provided by the Guarantor, a special purpose vehicle created to facilitate a security mechanism for the Capital Providers, in the form of guarantees issued to the Capital Providers and to the holders of the MGX notes. The Guarantor will hold the underlying assets of Main Street and MGX as security for its obligations under the guarantees provided by it to the Capital Providers, namely, MGX Property. The values of the facilities and the MGX notes, as set out in paragraphs 3, 4 and 5 are calculated on the basis that: all the pending disposals, (except the possible disposal of Didata UK), are implemented; the proceeds from the disposals reduce the debt of MGX by the total purchase consideration received of approximately R190 million and scheme creditors claims are compromised in terms of the scheme; and the Court sanctions of the schemes. EC-Hold shareholders with claims against MGX, arising from the ruling of the SRP detailed in paragraph are not required or entitled to participate in the scheme. Should any of the pending disposals, not become unconditional, the scheme is not sanctioned by the Court or if the disposal of Didata UK is concluded, then the amounts of some or all of the facilities or the MGX notes may change. 9

12 4. IMPORTANT TERMS AND CONDITIONS OF THE DEBT REFINANCING The important terms and conditions of the debt refinancing are set out below. 4.1 The important terms and conditions of the Metrofile facilities The important terms and conditions of the Metrofile facilities are set out below The Metrofile A facility The Metrofile A facility will: be a 5 year senior loan facility made available to Main Street in the amount of R106 million; be paid down to R80 million by MGX in terms of a fixed repayment schedule; and accrue interest at the prime rate minus 1%, which interest will be capitalised on an nacq basis. The Metrofile A facility lenders have the first right of recourse to the security, together with the providers of the Working Capital Facility referred to below The Working Capital Facility The Working Capital Facility will: be a revolving working capital facility made available to Metrofile Division in the amount of R10 million; accrue interest at the prime rate minus 1%, which interest will be capitalised on an nacq basis; be repaid in full on the earlier of 12 months after the refinancing becomes unconditional or the date upon which the Metrofile A facility reaches a level of R80 million; and rank pari passu with the Metrofile A facility with regard to access to the security The Metrofile B facility The Metrofile B facility will: be a five year credit facility made available to Main Street in the amount of approximately R112 million; accrue interest at the prime rate, which interest will be capitalised on an nacq basis; be repayable from the excess cash flows of Main Street after the Working Capital Facility has been repaid and the Metrofile A facility has been reduced to R80 million; and be secured by a second right of access to the security and rank pari passu with the rights of the Metrofile B1 facility. The balance of the Metrofile B facility, inclusive of accrued and capitalised interest outstanding, will be convertible, at the election of the lenders of the Metrofile B facility and the Metrofile B1 facility, into Main Street shares on: the happening of certain default events which are more fully set out in the common terms agreement; or the final date for repayment of the Metrofile B facility The Metrofile B1 facility The Metrofile B1 facility will: be a five year credit facility made available to Main Street in the amount of approximately R20 million; accrue interest at the prime rate, which interest will be capitalised on an nacq basis; be repayable from the excess cash flows of Main Street after the Working Capital Facility has been repaid and the Metrofile A facility has been reduced to R80 million; and be secured by a second right of access to the security and rank pari passu with the rights of the lenders of the Metrofile B facility; and be conditional on obtaining exchange control approval from the South African Reserve Bank. 10

13 The balance of the Metrofile B1 facility, inclusive of accrued and capitalised interest outstanding, will be convertible, at the election of the lenders of the Metrofile B1 facility and the Metrofile B facility, into Main Street shares on: the happening of certain default events which are more fully set out in the common terms agreement; or the final date for repayment of the Metrofile B1 facility The Metrofile C facility The Metrofile C facility will: be a five year credit facility made available to Main Street in the amount of approximately R77 million; accrue interest, at the prime rate plus 2%, which interest will be capitalised on an nacq basis; be repayable from the excess cash flows of Main Street after settlement of the capital and interest of the Metrofile B facility and the Metrofile B1 facility; and be secured a third right of access to the security. The balance of the Metrofile C facility outstanding, inclusive of accrued and capitalised interest will: automatically convert into Main Street shares, on the final repayment date of the Metrofile C facility; or automatically convert into Main Street shares, if the Metrofile B facility and the Metrofile B1 facility convert at any time. In addition, on the happening of certain default events which are more fully set out in the common terms agreement, the Metrofile C facility will be convertible, at the election of the lenders of the Metrofile C facility, into Main Street shares even if the Metrofile B facility does not convert into Main Street shares The conversion of Metrofile facilities In the event that there is a conversion of the Metrofile B facility or the Metrofile C facility, each of the Capital Providers will have the option to call on MGX to sell its shares in Main Street, pro rata to the outstanding amount owing to each of the Capital Providers, for R Effect of the disposal Didata UK disposal As discussed in paragraphs 3 and 7.1.2, MGX is currently attempting to dispose of its 80% interest in Didata UK. If this transaction is implemented, the purchase consideration for this transaction will be used to settle the Metrofile B1 facility. To the extent that there are funds remaining after settling the Metrofile B1 facility, the remaining funds will be used to settle a portion of the Metrofile B facility. 4.3 Conditions precedent to the debt refinancing The debt refinancing is conditional upon, inter alia: the sanctioning of the scheme by the Court; the SRP waiving the requirement that the Capital Providers, collectively or individually, will be obliged to make an offer to the minority shareholders of MGX in the event that there is a change of control of MGX as a result of the debt refinancing and the scheme; and the shareholders of MGX, Main Street and the Guarantor, in general meeting, passing all of the resolutions necessary to implement the debt refinancing. 5. IMPORTANT TERMS AND CONDITIONS OF THE SCHEME, THE MGX NOTES AND THE MGX B FACILITY 5.1 The scheme The debt remaining in MGX after the debt refinancing will be approximately R85 million of which approximately R55 million will be settled by MGX issuing the MGX notes to the scheme creditors in terms of the scheme, in the event that the scheme becomes unconditional. Of the balance of R30 million, R20 million will be converted into the MGX B facility as set out in paragraph 5.4 below and approximately R10 million is indemnified by Ronald Price as discussed in paragraph

14 5.2 Important terms of the MGX notes The MGX notes will: be issued at a nominal value of R1.00; accrue interest at the prime rate plus 3%, which interest will be capitalised on an nacq basis; be repayable from the excess cash flows from Main Street once the capital and interest on the Metrofile C facility has been repaid; have a fourth right of recourse to the security furnished by the Guarantor and rank pari passu with the rights of the MGX B facility; and be compulsorily converted into MGX shares: if the Metrofile C facility converts into Main Street shares at any time; or in the event that the MGX notes have not been redeemed for cash within 5 years of the date of the refinancing becoming unconditional. In the event that the MGX notes are compulsorily converted, the formula to determine the number of MGX shares to be issued to a holder on a conversion of the MGX notes is the same as for the MGX B facility, as discussed in paragraph 5.4, and no voluntary conversion of the MGX notes into MGX shares is provided for. The full terms and conditions of the MGX notes are set out in Annexure Conditions precedent to the scheme The scheme is conditional upon the following conditions precedent: the debt refinancing agreements becoming unconditional, save for any condition in those agreements requiring the schemes to become unconditional; the approval by the requisite majority of shareholders of MGX in general meeting of the: debt refinancing; and issue of the MGX notes, all regulatory approvals and consents necessary in respect of the debt refinancing and the scheme being obtained; the scheme being approved by a requisite majority of each class of the scheme creditors; the Court sanctioning the scheme; a certified copy of the order of the Court sanctioning the scheme being lodged with, and registered by, the Registrar of Companies in terms of the Companies Act; and the announcement by MGX on SENS, that all conditions precedent have been fulfilled or waived in accordance with the terms of the scheme. 5.4 The MGX B facility The MGX B facility will: be a three year credit facility made available to MGX in the amount of R20 million; accrue interest at the prime rate plus 3%, which interest will be capitalised on an nacq basis; be repayable from the excess cash flows of MGX on a pari passu basis with the MGX notes; and be secured by Didata UK shares and a fourth right of access to the security and rank pari passu with the rights of the MGX notes to the extent not secured by the Didata UK shares. The balance of the MGX B facility outstanding, inclusive of accrued and capitalised interest, after the exercise of the security over the Didata UK shares (in the event that MGX s interest in Didata UK has not been disposed of), will be compulsorily convertible into MGX shares at the end of 5 years. 12

15 In the event that the MGX B facility converts into MGX shares, it will convert on the following terms: MCS = MCO MVPMS where: MCS = the number of MGX shares which will be issued to the lenders converting the MGX B facility into MGX shares. MCO = the principal amount outstanding, including any accrued and capitalised interest. MVPMS = a. if MGX is listed on the JSE, the volume weighted average share price of an MGX share as quoted on the JSE for the three months prior to the date of the conversion of the MGX B facility into MGX shares; and b. if MGX is not listed on the JSE, the Services Sector price: earnings multiple as quoted by the JSE on the date of the conversion of the MGX B facility into MGX shares less 10% and multiplied by the consolidated earnings of MGX and divided by the total number of MGX shares in issue. 6. FINANCIAL EFFECTS The table below sets out the pro forma financial effects of the debt refinancing on the HEPS and EPS, based on the MGX s results for the year ended 30 June The debt financing has no effect on the NAV and TNAV per MGX share. Before the Pro forma after the debt refinancing debt refinancing Change (cents) 1 (cents) 2 HEPS (396.20) (384.29) 3.01% EPS ( ) ( ) 1.13% Notes: 1. The HEPS and EPS, Before the debt refinancing, have been extracted from MGX s annual financial results for the year to 30 June 2003 and have been calculated based on million MGX shares in issue, being the weighted average of the number of shares in issue during the year. 2. The pro forma HEPS and EPS, After the debt refinancing, have been calculated based on million MGX shares in issue, being the weighted average of the number of shares in issue during the year, assuming that: the debt refinancing was implemented on 30 June 2002; the average prime rate over the period was 16.72%; the remaining portion of the average borrowings for 2002 and 2003 was financed at the prime rate; the Metrofile A facility attracted interest at the prime rate minus 1%, the Metrofile B facility attracted interest at the prime rate, the Metrofile B1 facility attracted interest at the prime rate, the Metrofile C facility attracted interest at the prime rate plus 2%, the Working Capital Facility attracted interest at the prime rate less 1%, the MGX notes attracted interest at the prime rate plus 3%, the MGX B facility attracted interest at the prime rate plus 3% and the balance of the borrowings attracted interest at the prime rate; MGX s headline earnings and earnings are increased by R7.931 million, being the difference in the interest paid over the period on the average total borrowings had the debt refinancing taken place, compared with the actual interest paid for the year to 30 June 2003; and 3. Out of the total pro forma interest of R million, an amount of R million, relating to the Metrofile A facility, is due and payable. The balance is payable out of free cash flow as and when it becomes available. 13

16 7. INFORMATION ON MGX 7.1 Nature and history of the MGX business MGX, which commenced business in 1969, is an investment holding company with investments in the information technology sector. The MGX group has become a specialist in the information management sector and a leading supplier of products and services for the conversion, storage, retrieval and distribution of documents and information. At the last practicable date MGX comprises the following operating entities The Metrofile Division The Metrofile Division focuses on all aspects of enterprise document and records management including paper, analogue and electronic content Didata UK Didata UK is a subsidiary of MGX based in the United Kingdom which focuses on forms processing, document storage and document retrieval. Through software developed inhouse by the subsidiaries of the MGX group, Didata UK has developed the ability to provide immediate online access to corporate records, providing a much needed service to the United Kingdom and European markets. MGX is in the process of attempting to dispose of its 80% interest in Didata UK Commercial properties MGX hold a 100% interest in the issued share capital of MGX Property, a property owning company which is the registered owner of the Midrand property. MGX is in the process of attempting to dispose of its interest in this company. MGX holds a 100% interest in the issued share capital of DBS, a property owning company which is the registered owner of the Linbro Park property. MGX has disposed of its interest in DBS, subject to the fulfilment of certain conditions precedent, including the approval of MGX shareholders. 7.2 Prospects for MGX The successful implementation of the recovery plan, of which the debt refinancing and the scheme are core components is integral to the strategy of the board to return the MGX group to a sustainable and profitable business. Once the debt refinancing, scheme and the all the disposals become unconditional, the Metrofile Division will be the only remaining business in the MGX group. The Metrofile Division is a business that produces sound and regular cash flows, has growth opportunities and will be in a position to sustain the debt that it has been required to service in terms of the debt refinancing. 7.3 Financial information Annexure 3 to this circular contains: the consolidated income statements of MGX for the years ended 30 June 2001, 2002 and 2003; the consolidated balance sheets of MGX as at 30 June 2001, 2002 and 2003; the consolidated cash flow statements of MGX for the years ended 30 June 2001, 2002 and 2003; and the accounting policies of MGX, as extracted from the annual financial statements for the year ended 30 June Major shareholders Based on the share register at the last practicable date, the shareholders with holdings in excess of 5% of the issued shares of MGX are set out in the table below. 14

17 Number of Interest shares (%) Price family interests STANLIB Limited Capital Africa Limited Caversham Trust Limited African Harvest Limited South Africa Private Equity Trust III Total Notes: As at the last practicable date MGX had no controlling shareholder. The percentage shareholding of major shareholders is calculated excluding treasury shares based on total shares outstanding of Loans and commitments Material loans to MGX, including material inter-company loans as at 30 June 2003 are set out in Annexure Change of direction The trading object of MGX is to carry on business as an investment holding with interest in the information technology sector company, and has remained the same since its listing on the JSE in 1995 and will remain as such for the foreseeable future. 8. INFORMATION RELATING TO DIRECTORS 8.1 Directors interests As at the last practicable date, the directors had interests in the share capital of MGX as set out below. Beneficial Non-beneficial Total shares Directors Direct Indirect Direct Indirect (%) Christopher Stefan Seabrooke* Anthony Charles Ball Danisa Eileen Baloyi* Eduardo Gutierrez-Garcia*** Stephen Roy Midlane Norman John Webster * Non-executive *** Alternate to Anthony Charles Ball 8.2 Directors interests in transactions Other than as mentioned above, as at the last practicable date, none of the directors has any interest in any transactions that were entered into by MGX, that were effected by MGX during the current or immediately preceding financial years and remain in any respect outstanding. 8.3 Significant contracts Save for those agreements that have been disclosed to shareholders in terms of the Listings Requirement of the JSE, MGX has not entered into any material contracts, otherwise than in the course of business, during the two years prior to the date of this circular: 15

18 8.4 Directors service contracts The aggregate remuneration and benefits paid to the directors of MGX for the year ended 30 June 2003 are set out in the table below. Salary and other Loss of Directors benefits office Bonuses fees Total (Rand) (Rand) (Rand) (Rand) Danisa Eileen Baloyi* Anthony Ball* Raymond Dalais* Peter Flack Eduardo Gutierrez-Garcia* Chris Hills Aletha Ling Patrick Landey* Daniel Jackson McMahon Stephan Midlane Andrew Moffat Ronald Price* Lindsay Robertson Christopher Seabrooke* Rory Shirley Norman Webster Linda Wengrowe* Total * Non-executive director 8.5 Litigation No investigation, litigation, arbitration or administrative proceedings of or before any court, arbitral body or government agency,, have been started or (to the best of MGX s knowledge and belief, after due enquiry) are pending or threatened against MGX or any of its subsidiaries, that may have or have had in the recent past, being at least the previous 12 months, a material effect on the MGX group s financial position, save for: SRP/MGX/EC-Hold The ongoing dispute with the SRP which, in March 2002, ruled that, for the purposes of the Securities Regulation Code on Takeovers and Mergers and the Rules of the SRP, MGX and the Trustees for the time being of the Mandy Rebecca Price Trust had acted in concert for the purposes of entering into an affected transaction. MGX and the Trustees for the Time Being of the Mandy Rebecca Price Trust were ordered jointly and severally to make an unconditional offer to all persons, other than themselves, who were shareholders of EC-Hold on 11 October 1999 to purchase all such persons shares in EC-Hold. The offer price determined by the SRP was R2.40 per EC-Hold share and the offer to EC-Hold shareholders was in all other respects to comply with Section F, Rule 8 of the SRP Rules and Code on Takeovers and Mergers. As at the last practicable date, MGX had not complied with the ruling of the SRP and on 28 July 2003, a summons, issued by the High Court of South Africa, was served on MGX, in terms of which the SRP sought an order against MGX and several other defendants for, inter alia, compelling MGX and the other defendants to comply with its ruling of March MGX has entered an appearance to defend. MGX intend to propose a scheme of arrangement to compromise any EC-Hold shareholders holding claims against MGX arising out of the SRP ruling. The MGX Capital Providers have confirmed that they will waive any conditions precedent to the common terms agreement 16

19 relating to the implementation of such a scheme of arrangement.the MGX Capital Providers have indicated that they will proceed with the debt refinancing in the knowledge that the Company faces the risk of a potential additional liability in respect of this matter. The company believes that it has taken adequate steps in terms of the restructuring agreements to ensure that any further amounts required to deal with the matter will be settled in loan notes, as described in note The value of such loan note should not exceed R12 million and an indemnity is held from R S Price to the extent that any liability pursuant to this matter is to be settled in cash Motswedi Motswedi initiated arbitration proceedings against MGX on 26 February 2002 in respect of its claim for damages for breach of contract in the amount of R MGX has defended the matter and its attorneys of record, Webber Wentzel Bowens, communicated in writing, that there is no reasonable prospect that the claim will succeed. Motswedi has taken no further action since the proceedings were initiated. Deloitte & Touche, the auditors of MGX, are in possession of the letter from Webber Wentzel Bowens and after further enquiries made by Deloitte & Touche, MGX has made no provision for this claim due to the unlikeliness of it succeeding. MGX is furthermore of the opinion that it has a counterclaim against Motswedi which it is quantifying. The board is considering whether to proceed with an action against Motswedi to recover the amount of the counterclaim, which, at the end of January 2002, amounted to R Sun MGX received a letter of demand, in terms of section 345 of the Companies Act, dated 3 May 2003 from Sun Microsystems, for payment of an amount of R and a letter of demand from Sun Microsystems Schweitz claiming an amount of US$ MGX has repudiated both claims on the basis that it is not indebted to either of the aforesaid companies in the amounts claimed or at all for a variety of reasons. On or about 26 May 2003, MGX applied to the High Court of South Africa for an order to interdict Sun from bringing any action against MGX. As at the last practicable date, Sun has not filed its answering affidavit and further action has been stayed pending settlement discussions and a proposed payment by MGX of US$ and payment by the purchasers of the business of MGX Enterprise Solutions (Proprietary) Limited, African Legend Indigo (Proprietary) Limited of US$ Metrofile Division Labour Action During 1998, wage negotiations between Metrofile Division and a Trade Union deadlocked. The unionised members went on strike during the period 26 March 1998 to 15 April Pursuant thereto, Metrofile Division dismissed striking members due to their misconduct during the strike action. The matter was referred to the Labour Court, which ruled that the dismissals were substantively fair but concluded that the dismissals were procedurally unfair. However, the Labour Court held that, considering the nature of the misconduct of the employees during the strike action, no compensation was to be ordered in favour of the employees. The Labour Court made no order as to costs. The matter was taken on appeal by the Trade Union to the Labour Appeal Court during 2002 and the hearing was concluded on 17 December As at the last practicable date, the Labour Appeal Court has not yet given its judgment. Metrofile Division has further been advised by its legal representatives, that it is possible, but not probable, that the Labour Appeal Court would order the reinstatement of the employees as from The consequences would be that Metrofile Division would be required to reinstate approximately 70 staff members for a period to be determined by the Court at a possible quantum between R and R Metrofile has not made a provision for this amount in its annual financial statements but has recorded it as a contingent liability of R MGX Outsourcing/Ukusa Technologies MGX Outsourcing instituted action for an amount of R in the High Court of South Africa in Durban against its JV Partner, Ukusa Technologies, pursuant to payment received under a joint tender from the DOSW, relating to the creation of an electronic registry database. 17

20 The cause of action arose from the directors of Ukusa instructing DOSW to make payment due to the joint venture vehicle, Digital Initiatives, directly into Ukusa s banking account as opposed to the banking account of Digital Initiatives. MGX Outsourcing obtained a High Court Order attaching all monies in Ukusa Technologies bank account, directing DOSW to pay monies owing under the tender to Digital Initiatives and interdicting Ukusa Technologies from operating the bank account. The amount allegedly misappropriated is R , excluding further funds which are owing to Digital Initiatives in the sum of R , which MGX Outsourcing is attempting to recover. MGX Outsourcing has provided for the impairment of the aforesaid amount as it is unsure whether the amount of R will be recoverable. Ukusa Technologies instituted a separate action against MGX which the High Court of South Africa separated from the above action and which was adjourned on 21 October 2003 for Ukusa Technologies to file a replying affidavit. This affidavit was not lodged. MGX and MGX Outsourcing have no knowledge of any application for an Anton Piller Order and no such order has been served on the MGX group. MGX Outsourcing believes that Ukusa s counter action has no merit at all. The Ukusa action is not for a sum of money it is for an accounting order and for Ukusa Technologies to obtain control of Digital Initiatives cash flow. MGX Outsourcing has previously invited Ukusa Technologies to audit the books of Digital Initiatives, which process has been completed. There appears to be no financial risk to MGX arising from the above matter Tzvi Appel s claim to Didata UK shares Tzvi Appel, a previous director of EC-Hold (who resigned on 25 April 2003), has an alleged claim against MGX for the issue and allotment to him of approximately 2% or 880 shares of MGX s issued share capital in Didata UK resulting from his alleged claim to commission due and payable to him pursuant to raising investment finance in Didata UK. Settlement discussions are, as at the last practicable date, underway and if such shares are to be issued and allotted to Mr Appel, MGX is to issue and allot shares from its shareholding in Didata UK whereby MGX s shareholding will be diluted, it being noted however that MGX will only so issue and allot upon Mr Appel proving his claim on the balance of probabilities doubt (the onus of proof being on Mr Appel) and the board of MGX has satisfied itself as to Mr Appel s claim Amir Lubashevsky In terms of a sale of shares agreement entered into between MGX and Amir Lubashevsky on 13 July 2001, Lubashevsky sold to MGX ordinary shares in EC-Hold. The purchase price was to be settled partly in cash and partly by MGX purchasing MGX shares for the benefit of Lubashevsky, in various tranches over a 24 month period. A reconciliation of the amounts expended/ advanced indicates that MGX has overpaid Lubashevsky an amount of approximately R At present, discussions are under way between MGX and Lubashevsky pertaining to the settlement of the aforesaid amount CCMA cases Certain individual employees have threatened or instituted referrals to the CCMA pursuant to recent termination of employment in accordance with the restructuring and downsizing of the MGX group, the most notable being that of a certain Mr Farouk Jallal for an estimated claim of R There are a further seven referrals within Metrofile and should the CCMA or any Labour Court rule in favour of all the employees against MGX, it is estimated that the total liability to MGX or Metrofile will be approximately R , including the claim of Mr Jallal. 18